Annual Report 2018

BOC AVIATION LIMITED ANNUAL REPORT 2018 CONTENTS 02 Financial Highlights 05 Portfolio and Operational Highlights 08 Our 25 Years In Review 10 Milestone Timeline 1993-2018 12 Chairman’s Statement 14 Chief Executive’s Comments 16 Business and Financial Review 27 Management Discussion and Analysis 39 Directors, Officers and Senior Management 45 Corporate Governance Report 65 Directors’ Statement 79 Environmental, Social and Governance Report 92 Five Year Financial Summary 93 Corporate Information 94 Definitions Appendix A – Financial Statements 01 BOC AVIATION LIMITED ANNUAL REPORT 2018 FINANCIAL HIGHLIGHTS Our financial highlights for the year ended 31 December 2018 are: • Total revenues and other income rose 23% year-on-year, to US$1,726 million • Profit before tax was US$685 million, up 24% year-on-year, and net profit after tax was US$620 million • Earnings per Share of US$0.89 and net assets per Share of US$6.05 • Total assets increased 14% year-on-year, to US$18 billion at 31 December 2018 • Raised US$2.7 billion in new financing and ended the year with a debt to equity ratio of 3.0 times • Maintained strong liquidity with US$243 million in total cash and short-term deposits, and US$3.6 billion in undrawn committed credit facilities at 31 December 2018 • Cash collection from airline customers of 100% • Board recommended a final dividend for 2018 of US$0.1845 per Share, pending approval at the AGM to be held on 29 May 2019. The final dividend will be payable to Shareholders registered at the close of business on the record date, being 6 June 2019, bringing the total dividend for 2018 to US$0.31291 per Share Capitalised terms used but not defined in this annual report are found in pages 94 to 97. Due to rounding, numbers presented throughout this annual report may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. 1 Includes interim dividend of US$0.1284 per Share paid to Shareholders registered at the close of business on 5 October 2018. 02 BOC AVIATION LIMITED ANNUAL REPORT 2018 FINANCIAL HIGHLIGHTS EXHIBIT 1: NET PROFIT AFTER TAX (“NPAT”), US$’ m 620 587 418 343 309 2014 2015 2016 2017 2018 EXHIBIT 2: TOTAL ASSETS, US$’ b 18.3 16.0 13.4 12.5 11.4 2014 2015 2016 2017 2018 03 BOC AVIATION LIMITED ANNUAL REPORT 2018 FINANCIAL HIGHLIGHTS EXHIBIT 3: FINANCIAL HIGHLIGHTS Year ended 31 December 2018 2017 Change1 US$’m US$’m % Statement of Profit or Loss Revenues and other income 1,726 1,401 23.2 Costs and expenses (1,040) (850) 22.5 Profit before income tax 685 551 24.3 Net profit after income tax 620 587 5.8 As at As at 31 Dec 2018 31 Dec 2017 Change1 US$’m US$’m % Statement of Financial Position Cash and short-term deposits 243 305 (20.4) Total current assets 257 572 (55.1) Total non-current assets 17,999 15,468 16.4 Total assets 18,256 16,040 13.8 Total current liabilities 1,709 1,724 (0.9) Total non-current liabilities 12,349 10,497 17.6 Total liabilities 14,057 12,221 15.0 Net Assets 4,199 3,819 10.0 Financial ratios Net assets per share (US$)2 6.05 5.50 Gearing (times)3 3.0 2.9 1 Percentage change is calculated based on numbers in US$ thousands as shown in the financial statements. 2 Net assets per share is calculated by dividing net assets by total number of shares outstanding at 31 December 2018, and 31 December 2017, in the respective columns. Number of shares outstanding at 31 December 2018 and 31 December 2017 was 694,010,334. 3 Gearing is calculated by dividing gross debt by total equity at 31 December 2018, and 31 December 2017, in the respective columns. 04 BOC AVIATION LIMITED ANNUAL REPORT 2018 PORTFOLIO AND OPERATIONAL HIGHLIGHTS As at 31 December 2018, BOC Aviation: • Had a total fleet of 511 aircraft owned, managed and on order1, with an average aircraft age of 3.0 years and an average remaining lease term of 8.3 years for the 303 owned aircraft fleet, weighted by net book value • Leased aircraft to 93 airlines in 37 countries and regions • Had taken delivery of 55 aircraft (including five acquired by airline customers on delivery) in 2018 • Signed 92 lease commitments in 2018 • Sold 34 owned and seven managed aircraft in 2018 • Had an order book of 183 aircraft1 • Recorded aircraft utilisation of 99.9% for the year ended 31 December 2018 1 Includes all commitments to purchase aircraft including those where an airline customer has the right to acquire the relevant aircraft on delivery. 05 BOC AVIATION LIMITED ANNUAL REPORT 2018 PORTFOLIO AND OPERATIONAL HIGHLIGHTS EXHIBIT 4: AIRCRAFT PORTFOLIO AT 31 DECEMBER 2018, BY NUMBER OF AIRCRAFT Owned Managed Aircraft on Aircraft Type Aircraft Aircraft Order1 Total Airbus A320CEO family 130 8 0 138 Airbus A320NEO family 24 0 62 86 Airbus A330CEO family 12 4 0 16 Airbus A330NEO family 0 0 12 12 Airbus A350 family 6 0 2 8 Boeing 737NG family 98 8 2 108 Boeing 737 MAX family 5 0 90 95 Boeing 777-300ER 19 3 3 25 Boeing 777-300 0 1 0 1 Boeing 787 family 4 0 12 16 Freighters 5 1 0 6 Total 303 25 183 511 1 Includes all commitments to purchase aircraft including those where an airline customer has the right to acquire the relevant aircraft on delivery. 06 BOC AVIATION LIMITED ANNUAL REPORT 2018 PORTFOLIO AND OPERATIONAL HIGHLIGHTS EXHIBIT 5: NET BOOK VALUE OF AIRCRAFT BY REGION1 8.8% 31.5% AMERICAS CHINESE MAINLAND, HONG KONG SAR, MACAU SAR AND TAIWAN 12.9% MIDDLE EAST 23.0% AND AFRICA ASIA PACIFIC (EXCLUDING CHINESE MAINLAND, HONG KONG SAR, 23.8% MACAU SAR AND TAIWAN) EUROPE EXHIBIT 6: COMMITTED AIRCRAFT DELIVERIES BY NUMBER OF AIRCRAFT2 79 54 50 2019 2020 2021 1 Based on the jurisdiction of the primary obligor under the relevant operating leases. Excludes two Airbus A320 aircraft off lease at 31 December 2018 which were delivered to a customer in the Americas in January 2019. 2 Includes all commitments to purchase aircraft including those where an airline customer has the right to acquire the relevant aircraft on delivery. 07 BOC AVIATION LIMITED ANNUAL REPORT 2018 OUR 25 YEARS IN REVIEW BOC Aviation’s journey began when it was formed as Singapore Aircraft Leasing Enterprise (S.A.L.E.) in November 1993 as an equal joint venture between Singapore Airlines and a leasing company based in the USA. S.A.L.E. was initially founded to arrange and manage aircraft operating leases in which its joint venture partners and others would invest. The original partners played important roles in establishing S.A.L.E. in the market through their combined expertise in the areas of aircraft acquisition, technical services, leasing and onward sales of aircraft. This expertise was gradually brought in-house after the entry of Temasek Holdings and GIC as shareholders in November 1997. It was during this initial phase of our development, with a largely Singaporean shareholder base, that our core management team was built, providing a platform for our future growth and development. In December 2006, Bank of China acquired 100% of our shares and S.A.L.E. was rebranded as BOC Aviation. Bank of China remained our sole shareholder for nearly a decade, until June 2016 when the evolution of our ownership continued with the listing of our shares on the Hong Kong Stock Exchange. Public investors now hold 30% of the Company. Our IPO was the largest aircraft operating lessor offering in history. The Company has been consistently profitable throughout its history. Since inception, we have produced US$3.7 billion in net profit after tax and have distributed over US$670 million to our shareholders. EXHIBIT 7: CUMULATIVE NPAT, US$’m 4,000 3,709 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 08 BOC AVIATION LIMITED ANNUAL REPORT 2018 OUR 25 YEARS IN REVIEW Before our IPO we had drawn paid up capital of only US$608 million. In 2016, we raised fresh equity of US$550 million and have now expanded into a company with a market capitalisation of US$5.1 billion as at 31 December 2018. Not only has our profit grown steadily, we have also been able to maintain an industry- leading return on equity, which has averaged 15% since our acquisition by Bank of China 12 years ago. Our earnings and returns have been impressive not just in terms of magnitude, but also in their stability and consistency across industry cycles. They have been achieved against a backdrop of constant competition and frequent cyclical volatility. We have successfully navigated five economic and industry downturns in our 25 years and have established ourselves at the forefront of the aircraft operating leasing industry. We attribute our longevity to the strong, long-term relationships we have built with customers, manufacturers, financiers, shareholders and other business partners, and to the professionalism and dedication of our directors and our employees. We have also adhered to our business model, which is primarily focused on investing in young, in-demand aircraft purchased at good prices, financing these investments efficiently, and placing them on long term leases with good quality airlines.

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